Smith & Nephew slashes costs after first-half market slump
By Josh White
Date: Wednesday 29 Jul 2020
(Sharecast News) - Smith & Nephew reported an 18.7% fall in revenue in its first half on Wednesday, to $2.035bn (£1.57bn), as it swung to an operating loss of $5m, from a profit of $419m a year earlier.
The FTSE 100 medical devices maker said its operating loss margin was a negative 0.2% for the half-year ended 27 June, compared to a 16.8% operating profit margin in the equivalent period of 2019.
Cash generated from operations stood at $125m for the period, down from $543m year-on-year, while earnings per share slid to 11.5 US cents, from 35.3 cents 12 months prior.
Smith & Nephew said trading was in line with its 1 July update, as the business was impacted by government-led Covid-19 restrictions, although performance did improve in the second quarter as elective surgeries restarted, with underlying revenue declines of around 47% in April, 27% in May, and 12% in June.
By the end of the second quarter, elective procedures had resumed across the United States and in most European countries, while China also returned to growth for the second quarter.
The firm said the fall in its operating and trading profit margin was in line with previous announcements, explaining that the Covid-19 impact was reflected in lower gross margins, including from an increase in provisions and factory underutilisation, and negative leverage from fixed selling, general and administrative costs.
Discretionary cost saving measures of around $150m were delivered in the first half, out of its programme to deliver up to $200m in 2020.
Smith & Nephew did report that its recently-launched products were performing "strongly", including the 'OR3O' Dual Mobility Hip System' and 'EVOS in Trauma'.
Investment in research and development was maintained, with "significant" new product introductions, including a new robotics platform.
The board confirmed an interim dividend of 14.4 cents would be paid, in line with last year, adding that the company had a "strong" balance sheet and "good" liquidity, with net debt excluding lease liabilities of $2.1bn, weighing against $3.4bn of committed facilities.
Its 2020 guidance remained withdrawn due to continuing uncertainty around the impact of Covid-19.
"We have continued to serve our customers throughout, and were ready as lockdown restrictions eased, delivering an improving performance across the second quarter," said chief executive officer Roland Diggelmann.
"At the same time, we have taken measures to ensure the Group emerges from this crisis as strongly as possible."
Diggelmann said those actions included maintaining its research and development investment, launching new products, protecting jobs, and managing its cost base.
"There remain many uncertainties as countries continue to battle Covid-19, but with our unique portfolio, proven strategy, strong balance sheet and motivated workforce we are ready to take advantage as markets recover."
At 0816 BST, shares in Smith & Nephew were down 4.2% at 1,561.5p.
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